The Effect of Return on Equity, Earnings per Share, and Price Earnings Ratio on Stock Prices in the Insurance Sector of Pakistan (2019-2023)

Fatima  Mohsin; Muhammad  Muzammil; Shehroz  Faheem

doi:10.63516/

Authors

Fatima Mohsin University of Karachi Author https://orcid.org/0009-0000-8574-1972
Muhammad Muzammil University of Karachi Author
Shehroz Faheem University of Karachi Author

DOI:

https://doi.org/10.63516/

Keywords:

Stock Prices, Return on Equity , Earnings per Share , Price-to-Earnings Ratio , Insurance Sector, Pakistan

Abstract

Purpose: This paper investigates the impact of three major financial metrics i.e. Return on Equity (ROE), Earnings per Share (EPS), and Price-to-Earnings Ratio (PER) on stock prices in Pakistan's insurance sector. The objectives of this study is to examine whether these financial indicators significantly influence market valuation and to provide empirical evidence from an emerging economy context.

Design/Methodology/Approach: A quantitative research design was adopted, using panel data from 15 insurance companies listed on the Pakistan Stock Exchange (PSX) from 2019 to 2023. Secondary data were obtained from annual reports, the PSX database, and the State Bank of Pakistan. Panel least squares regression was employed in EViews software to test the relationships between stock prices (dependent variable) and the financial indicators (independent variables).

Findings: The results show that all three financial ratios—ROE, EPS, and PER—have a statistically significant and positive impact on stock prices. EPS exerts the most decisive influence, followed by PER and ROE. The regression model demonstrates high explanatory power (R² = 0.871), confirming that firm-level profitability and valuation ratios are key determinants of stock price movements in Pakistan's insurance sector.

Originality/Value: This study contributes to the limited literature on emerging markets by providing robust evidence from Pakistan's under-researched insurance sector. The findings offer practical insights for investors, policymakers, and corporate managers, emphasizing the importance of financial performance indicators in investment decision-making and stock market efficiency.

Author Biographies

Fatima Mohsin, University of Karachi

Student
Muhammad Muzammil, University of Karachi

Assistant Professor
Shehroz Faheem, University of Karachi

Student

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